Caledonia Mining earns $7.35-million in 2012

Caledonia Mining Corp. has released its fourth-quarter 2012 and 12-month operating and financial results to Dec. 31, 2012. Following the implementation of indeginization, Caledonia owns 49 per cent of the Blanket mine in Zimbabwe. Operational and financial information set out here is on a 100-per-cent basis unless indicated otherwise.

Operational highlights:

New record-high annual gold production at the Blanket mine in Zimbabwe
of 45,465 ounces, a 27-per-cent increase over the year ended Dec. 31, 2011
(35,826 ounces);

Fourth-quarter gold production of 11,821 ounces, a 12-per-cent increase on the fourth quarter of 2011 of 10,533 ounces;

Decrease of 1.7 per cent in direct full-year operating cash costs at Blanket to
$571 (U.S.) per ounce compared with $581 (U.S.) in 2011. Blanket's all-inclusive
costs for 2012 fell by 15.2 per cent to $759 (U.S.) per ounce compared with $895 (U.S.) per ounce in 2011.
The reduction in costs was driven by higher production and corresponding
lower average fixed costs per ounce.

Financial highlights:

Gold sales for the year were 45,181 ounces at an average price of
$1,666 (U.S.) per ounce, compared with 35,504 ounces at an average price of $1,577 (U.S.) per ounce in
2011.

Gold sales during the fourth quarter were 10,337 ounces at an average price of $1,703 (U.S.) per ounce,
compared with 12,918 ounces at an average price of $1,664 (U.S.) per ounce in the preceding
quarter, and 9,329 ounces at an average price of $1,712 (U.S.) per ounce in the
comparable quarter.

Gross profit for the year increased 41 per cent to $40,915,000 (2011:
$29,115,000).

Gross profit (that is, after depreciation and amortization but before
administrative expenses) for the fourth quarter was $9.25-million compared with $12,602,000
in the preceding quarter and $9,012,000 in the comparable quarter.

Net profit after tax for the fourth quarter was $3.59-million compared with a loss of
$7.24-million in the preceding quarter and a profit of $1,369,000 in the
comparable quarter.

Net profit for 2012 attributable to Caledonia's shareholders of
$8.72-million (1.72 cents per share) was after a non-cash, non-recurring
accounting charge of $14,161,000 arising from the successful
implementation of indeginization at the Blanket mine. Indeginization was
implemented by the sale of 41 per cent of Blanket to indigenous Zimbabweans and
the donation of 10 per cent of Blanket to the local Gwanda Community Share
Ownership Trust. Further explanation of the basis of this charge is set
out in note 5 to the annual consolidated financial statements.

Cash flow from operations in 2012 before capital investment was
$29,721,000 (2011: $17,428,000).

At Dec. 31, 2012, the company had cash and cash equivalents of
$27,942,000 compared with $24,615,000 at Sept. 30, 2012, and
$9,686,000 at Dec. 31, 2011.

Indeginization:

On Oct. 11, 2012, Caledonia announced the completion of the
transactions that implemented the indeginization of Blanket. Following
completion of these transactions Caledonia now owns 49 per cent of Blanket.

Caledonia has received the certificate of compliance from the government
of Zimbabwe which confirms that Blanket is fully compliant with the
Indeginisation and Economic Empowerment Act.

Caledonia will receive the $30.09-million proceeds of the sale to
indigenous Zimbabweans as the facilitation loans are progressively
repaid. The outstanding facilitation loans carry interest at Libor plus
10 per cent.

Base metals project, Zambia

The 2012 drilling program at the company's Nama base metals project comprised 10,903 metres over 20 holes and confirmed the existence of a copper-bearing mineralized zone. Shallow drilling will be undertaken on the identified zone to improve resource definition. Initial exploration work will also be carried out on additional zones of mineralization that have been identified to the west and south of the mineralized zone. Caledonia expects to issue a National Instrument 43-101-compliant copper resource statement by June 30, 2013, and a preliminary feasibility study by the end of 2013, on the possible mining of near-surface copper oxide material.

Growth strategy

As an indigenized entity, Blanket can now develop and implement its long-term growth strategy. The recently reconstituted Blanket board, which includes representatives of the indigenous Zimbabwean shareholders, has approved a capital investment program for 2013 and a four-year growth strategy for 2014 to 2017.

This investment program is estimated to cost $37-million (U.S.) and will be financed pro rata by all of Blanket's shareholders from Blanket's internally generated cash.

The investment program is expected to result in progressive increases in gold production to approximately 76,000 ounces in 2016 (of which 49 per cent will be attributable to Caledonia) with further upside potential coming from the development of the satellite deposits which are built into the capital expenditure program but not reflected in the gold production target.

Dividend policy

Caledonia will continue to maintain its strong financial position so that it can implement its stated growth strategy and retain the flexibility to take advantage of further opportunities without the need to raise third party finance. The directors will to continue to assess further dividend payments at least annually in light of Caledonia's continued financial performance and financial resources.

Commenting on these results, Stefan Hayden, Caledonia's president and chief operating officer, said:
"I am delighted to again report further strong operational and financial performance. Since production recommenced at the Blanket mine in 2009, we have quadrupled gold production and for the 12 months to Dec. 31, 2012, we achieved Blanket's all-time record high for annual production at 45,465 ounces of gold. As a result of the latest production increases, we have also reduced the cash cost of production to $571 (U.S.) per ounce; making Caledonia one of the lowest-cost gold producers in the world.

"Following the implementation of indeginization at Blanket, Caledonia announced in January, 2013, a growth strategy to increase production at Blanket by 90 per cent to 76,000 ounces of gold in 2016. This plan is estimated to cost $37-million (U.S.) and will be entirely funded from Blanket's internally generated cash. The target production of 76,000 ounces excludes any potential production upside from any of Blanket's highly prospective 18 satellite properties. Exploration and development work is currently well under way at the first three satellites and I look forward to announcing the preliminary results of this work in due course. Importantly, the Blanket crushing and metallurgical plant has surplus capacity and any incremental ore from these satellites could be treated with modest additional capital investment.

"In addition, further exploration work at our base metals project, Nama in Zambia, is being carried out with a view to issuing a NI 43-101 compliant copper resource statement this year."